By Tiernan Ray

The Street today offers a couple of different takes on the prospects for Intel (INTC) in tablet computers since Monday’s announcement by Samsung Electronics (005930KS) that it intends to use the “Clover Trail+” processor from Intel in its forthcoming ”Galaxy Tab 10.1” tablet computer, following several notes by the Street yesterday, primarily pondering the possible downside.

Today, Lazard Capital‘s Daniel Amir reiterates a Buy rating on Intel stock, and a $28 price target, writing that the win with Samsung, and a simultaneous win with Asus (2357TW) for the “Memo Pad FHD,” “Memo PAD HD7,” and “FonePad,” are “validation of Intel silicon in tablets and believe this is an important milestone for the company in its efforts to gain traction in mobile.”

The design wins show Intel can move beyond Microsoft‘s (MSFT) Windows operating system to make inroads in devices supporting Google‘s (GOOG) Android, writes Amir. (Intel’s highest-profile tablet win previously had been the Surface computer sold by Microsoft itself.) However, the more important point to Amir is the prospect of Intel winning more business through its edge in processor design and manufacture beyond Clover Trail:

We believe we are beginning to see the “fruits of Intel’s efforts” at this point. While there has been market discussion for some time in terms of Intel’s opportunity in tablets, we think these recent design wins represent a significant accomplishment in gaining traction with Tier-1 customers. Intel has traditionally been strong on the Windows OS platform, but is also seeing traction with Android. We note that share for both operating systems is expected to increase with Android accounting for more than half of the market. While WinRT has been a disappointment to date, we still expect WinOS share to grow to 16% of the market by 2016. We believe Intel tablet processors could have a TAM opportunity amounting to twothirds of the market [...] Design wins at Samsung and Asus are utilizing Intel’s current generation tablet processor (Clover Trail). We expect Intel will realize increased success as it rolls out its next-generation processor (Bay Trail) in 4Q. Bay Trail will feature design improvements including a faster processor, better graphics, and improved power efficiency. We believe the improved specs will benefit Intel.

Amir predicts Intel could grab 6% of the total tablet processor market this year, for revenue of $293 million, and Based on expectations for both a growing tablet market and growing share, we see tablet revenue for Intel surpassing $1B in 2016.

Note that for the moment, tablet revenue will have more of an effect on sentiment, than on financials, as “could put to rest the bear argument that “Intel has no traction in tablets.” The fact that Intel also won the 4G LTE modem business from Samsung for the tablet could improve the outlook on chances for Intel to sell processors in smartphones, Amir thinks.

On the other hand, Sterne Agee‘s Vijay Rakesh today reiterates a Neutral rating on the shares, and a $20 price target, writing that this week’s announcements at the Computex trade show in Taipei, Taiwan, offer fodder for both bull and bear:

We believe there is something in INTC for everybody. For the bulls, it is new product ramps at advanced nodes that close the power gap with ARM and significantly improve the chances of end-market success. For Bears it is that the core PC market which is still ~60%+ of revenues continues to be sluggish, Capex requirements for ROI continue to be high, and the success of Silvermont might hasten the decline of PCs and NBs.

However, Rakesh comes down on the bear side, that cannibalization is a risk if tablets eat into notebook sales, where Intel makes higher prices on chips, and that tablet revenue won’t offset an already weak PC market:

Near-term cannibalization concerns – The very significant power-performance improvement for INTC in tablets might be a challenge if they start to cannibalize the NB market – almost robbing Peter to pay Paul. We believe it also adds uncertainty to the 4Q Win8.1 PC-Tablet mix for OEMs-ODMs. The Handset/Tablet market inherently has shorter product cycles, more product SKUs, more competition and lower margins than the oligopolistic PC market with INTC’s dominance. But in the near term we believe INTC can mitigate the downside with new ramps and improving GMs with utilization. For INTC also, the attendant top-line increase from a tablet upside is much lower than thetop-line upside from a Win8 NB pickup. We should note that IDC expects the tablet market to grow at a ~35% CAGR with the near-term PC market flattish. Longer-term unless INTC changes its business model to focus on cash flow or earnings generated, we believe GM and profitability in the lower ASP market might be a potential headwind.

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There are 4 comments

JUNE 6, 2013 4:38 P.M.

Stretcho44 wrote:

Sterne Agee‘s Vijay Rakesh : "We should note that IDC expects the tablet market to grow at a ~35% CAGR with the near-term PC market flattish"

Mr. Ray,
We should also note again that IDC defines a Portable PC with a detachable keyboard as a tablet. How much of near term PC-flattish is due to the way that IDC is sorting devices into PC and tablets.

Why do you think that Sterne Agee‘s Vijay Rakesh would make a mistake like that? Do you think it was on purpose or do you think that Rakesh was not aware of the facts? In either case, I think that you should raise the issue since your BLOG banner says "News, analysis, and actionable investing ideas". When you overlook errors like this and give credence to those analysts who are hurting companies and investors.

You can really make a difference by holding everyone, even me, accountable for the mistakes they make.

thanks
Stretcho

JUNE 6, 2013 5:08 P.M.

Tiernan Ray wrote:

Stretcho: I appreciate your point, but I don't think the presence of "slates" as IDC calls them, with detachable keyboards, is a big swing in the notebook/laptop number. I would argue the vast majority of notebook/laptop PC sales, in the sense they have been counted, are not slates with detachable keyboards. They are, rather, machines built with a single hinge between screen and keyboard. IDC further distinguishes that "Convertible devices with non-removable keyboards (such as Lenovo's Yoga) are not counted as Tablets," which is a good distinction, as it means some hybrids are still getting credit in the PC market number. However, it would, indeed, be interesting to know exactly what the potential overlap is, and I will certainly put that question to them.

JUNE 7, 2013 1:33 A.M.

Stretcho44 wrote:

I think these numbers are correct ... The IDC 2013 ship
estimates that I can find published May 2013 seem to indicate that
IDC Desktop PC 142.1 million Portable PC 203.8 million Tablet PC
229 million During Q1/2013, the Microsoft Surface Pro shipped and
estimated 900,000 units. The Surface Pro will classified as a
tablet. You can estimate the Surface Pro units for 2013 or you can
estimate the tablets in Q1 and then compare the two numbers . If I
linearly divide the 2013 by 4 (actual sales will not be linear), it
comes to 57.25 million tablets in Q1/2013. The 900,000 Surface Pro
units amount to 1.6% of the tablets and 0.3% of total Desktop +
Laptop units. You have a couple of other ideas about units that
would tilt the % one way or the other. Please use your knowledge
and your pen to add value to the arguments of the analysts. Your
value is much more than that of a news aggregator. thanks again S.http://www.idc.com/getdoc.jsp?containerId=prUS24129913

JUNE 7, 2013 3:58 A.M.

symbolset wrote:

If Intel gives into notions of cannibalization again then all hope is lost to them. Somebody is going to make cheap low power chips for Android phones and tablets and it may as well be them. If Intel were to continue to fail to compete in this arena their overall exposure to the public becomes niche. A profitable niche for a long time still, but to that tale the end is already writ. It *may* not quite be too late to make this turn, but it's a hard turn.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.